Economic ‘MONEY MEANS NOT MONEY’

viewpoints – REFLECTIONS ON THE

MEANING OF MONEY
1909–2009
Arthur Edwards ecaf_1901 78..81

Hartley Withers’ classic book, The Meaning of Money, sees its centenary this year.
Although the financial landscape has substantially changed since 1909, Withers’
book remains insightful, informative and readable. A symposium is being held in
late 2009 to explore what echoes can be heard today.

Keywords: Gold, credit, finance, metallism, chartalism, accounting.

Preamble [the] subject and which [was] the outcome of

Anniversaries prompt reflection, whether
upon a significant event, a person’s life or, as
here, a topic of general interest. The subject of
money is a perennial one, but the form it
takes periodically changes.
Hartley Withers set himself the task of
describing, in a clear and concise way, the
workings of the City of London at the
beginning of the twentieth century. His
primary concern was not with what he called
‘here and now’ money, the stuff one finds in
one’s pocket and uses to make a purchase –
for him that was a ‘well worn story’ – but with
what he describes as the ‘second sense of
money’, or ‘loan of money’. He approaches his
subject in what today might be called a
phenomenological manner, which is to say
that the meaning of money is illustrated best
by staying close to what can actually be
observed in practical life.
His efforts were well received,
notwithstanding ‘the difficulties of the subject
[which were] very real to its writer’, as
Withers noted in his preface. How would
one go about such a task today and what
difficulties would be attendant upon an
attempt to describe the meaning of modern
money?
The author of this essay came across
Withers’ book in the course of research on
money as a ‘differentiated’ phenomenon,
following up indications from Rudolf Steiner1
that ‘money as such does not exist, only three
kinds of money’. In 1919 Steiner spoke highly
of Withers as a discriminating observer whose
book was ‘the best that had been written on
real insight into social conditions’ (Steiner,
1945, pp. 2–3).
As the twenty-first century gets into its
stride, it is clear that were one now to attempt
to convey the meaning of money, one could
not begin with gold, as Withers did. Whether
in phenomenological or analytic terms, to
describe the workings of finance in an
economy which has become global and
closed, some other ground is needed.2 The
centenary of Hartley Withers’ book provides
an opportunity to survey the road that has
been travelled since its publication and to
mark the occasion with a symposium that
draws together the perspectives of some of
today’s leading monetary economists and
financial journalists.
Introduction
It was with the publication in 1909 of The
Meaning of Money that Withers introduced to
a lay audience a conception of money that
would allow the reader ‘to think the matter
out’ from the practical perspective of the
workings of the money markets. The book
received widespread acclaim and was
described by The Times in 1950 as ‘a great
book, epochal in finance’. Withers was even
compared with the great Bagehot, whose
Lombard Street he wrote an introduction to.
While Withers went on to write a further 20
books, it is likely that he will be remembered
for The Meaning of Money; even if ‘time has
swept away not only some parts of the
organisation he describes, but also the

© 2009 The Author. Journal compilation © Institute of Economic Affairs 2009. Published by Blackwell Publishing, Oxford

practical foundation of some of his economic
assumptions . . . his basic analysis is a permanent
achievement, indispensable to anyone who has to construct,
change, administer or criticise a financial organisation.’3
Biography
Born in 1867, educated at Westminster School and Oxford
University, Withers became one of the most eminent financial
journalists of his day, ‘raising the status and enlarging the
scope of the profession’. According to his Times obituary, ‘his
active and powerful mind was accurate, realistic, sceptical and
critical’ and he learned ‘what perhaps no one had ever clearly
learned before, the true economic interaction of all the organs
of finance – treasury, central bank, deposit banks, accepting
houses, brokers and merchants’. The opportunity to see the
whole from different perspectives is mirrored in his career as
author of a guide to Canterbury Cathedral, a school-teacher, a
clerk at the Stock Exchange, City Editor at The Times and The
Morning Post, employee at Seligman Brothers Merchant
Bankers, Director of Financial Inquiries at The Treasury and as
the editor of The Economist. He lived until 1950 and published
21 books in total, remaining active as a writer and in public
debates until World War II.
Book summary
The Meaning of Money sets out to make the City pages
comprehensible to the casual readers that Withers imagines
struggling to get to grips with their sense. It does this by
elucidating, in clear language, to what each of the terms refers
and gradually building up a complete picture of the
interaction of the disparate parts of the whole ‘machinery’ of
the City. In Withers’ words, ‘the object of this volume is to
explain a matter of plain, positive, practical fact, which is very
important, very dull and very little understood’. Without
further ado he embarks upon a journey which takes the reader
from the idea of ‘the price of money’, to an explanation of the
Bank of England’s balance sheet, to musings on London’s role
as a ‘monetary physician who cannot afford, under any
circumstances, to be sick’.
Withers takes the trouble to give careful common-sense
explanations of the development of the various commercial
practices that have resulted in the City’s core institutions. Thus
Bills of Exchange, Cheque Paying Banks, Bill Brokers and
Discount Houses, Accepting Houses and Foreign Banks are all
treated consequentially with their own chapters. This process
culminates in a description of the role of the Bank of England
at the centre of the financial process.
Though the subject appears unpromising, and Withers
modestly downplays its entertainment value, the narrative,
interspersed throughout with humour and practical
illustration, is anything but dry. A personality such as Withers
could not be content to contain himself with mere technical
elaboration of known facts; he must speculate as to future
developments, muse upon the recent past and ponder the
principle of comparative advantage that makes Italy a
producer of cultural goods or England disadvantaged in
manufacture.
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iea e c o n o m i c a f fa i r s ju n e 2 0 0 9 79
Today’s perspective
There is still much to be gleaned for today from Withers’
book, both in the general terms of banking practice and
specifically with regard to the deft handling of the American
1907 financial crisis, which was effectively managed so that it
did not become a global crisis; there existed a community of
men who supervised and felt responsible for the workings of
the system, and these were not regulators but bankers
themselves. In Withers’ telling words:
‘. . . good banking is produced, not by good laws, but by good bankers.
Just as the most carefully planned constitution will inevitably break
down if the men at the helm of government are incompetent or
dishonest, so no skilfully devised banking system will make banking
good, unless the banking is conducted by straight and able managers, or
defend banking from suspicion by its customers, if other wheels in the
financial machine have been proved to be unsound.’
(Withers, 1909, p. 79)
Just as one can argue that the 1907 crisis precipitated the
creation of the Federal Reserve in 1913, so too today one can
wonder what the effects of the 2007/08 crisis will be in terms
of new institutional arrangements, as likely as not set in a
global context.
Credit and inflation
Withers was among the first writers to describe openly ‘The
Manufacture of Money’ (ibid., p. 56), a process which is
comprehensively set out with reference to a bank’s balance
sheet. He judiciously points out that:
‘. . . it is a common popular mistake, when one is told that the banks of
the United Kingdom hold over 900 millions of deposits, [. . . to think of
the] huge amount of cash that has been saved by the community as a
whole, and stored by them in the hands of the bankers, and to regard it
as a tremendous evidence of wealth. But this is not quite the true view
of the case. Most of the money that is stored by the community in the
banks consists of book-keeping credits lent to it by its bankers. It is
usually supposed that bankers take money from one set of customers
and lend it to other customers; but in most cases, the money taken by
one bank has been lent by another.’
(ibid., pp. 57–58)
According to his obituary in The Economist, Withers had
apparently ‘shocked some orthodox bankers by the simple
thesis that every loan creates a deposit’. Indeed it is this
process, when liberated from the constraints placed upon it by
the existence of a gold standard (or like discipline), that can
foster one of the twin economic ailments of the modern age,
namely inflation.
As late as 1917 (three years after the suspension of the gold
standard) the term ‘inflation’ was, according to Withers, a
‘somewhat obscure expression’ (Edwards, 1995, p. 583). But it
was ‘inflation’, by his own confession, that was to become the
tree up which Withers barked (ibid., p. 580). He pointed out
that ‘the financial achievements of our war Governments do
not encourage us to increase official control of the money
markets’ (ibid.).
80 ‘money means not money’ – reflections on t h e m e a n i n g o f m o n e y 1909–2009
When in 1942 he wrote to The Times a letter of riposte to a
monetary reformist who believed that ‘our money must be
created and issued on sound lines by the State and spent
wisely into existence’, he explains that ‘when banks create
money they do so by lending to business men whom they
expect to be able to repay the advances. These advances can
only be repaid if they are used profitably, that is by providing
goods and services for which the consuming public will pay’.
This might be felt to be too elementary a point to be worth
mentioning, but one wonders what Withers would make of
today’s banking practice, a significant part of which lends not
against the provision of goods and services but the
collateralisation of assets.
Withers and his time
The period that Withers described, roughly speaking the last
third of the nineteenth century, belonged to the classic era of
the gold standard. London stood at the hub of world finance.
The assurance that came from many years of practical
experience gave its financial community the undisputed right
and responsibility to superintend the working of the market
machinery. This was largely a matter of refining and making
conscious the principles upon which the years of practice were
based. Few people, if any, could have anticipated the tumult
that the twentieth century would wreak. There was no
question but that gold would continue to provide the solid
ground upon which the extension of credit could be built.
From physical to fiscal money
From today’s perspective however, though one can argue that
humanity has not quite found the courage to attribute to gold
a purely ornamental and industrial role, the metal has
effectively been demonetised. What then has taken the place of
gold in providing the basis upon which credit can be
extended? What constitutes money today? It would appear
that humanity has travelled from a physical idea of money to a
fiscal one – today’s money is effectively ‘backed’ by future tax
revenues and state guarantees. But does this mark the end of
the journey or just a staging post along the way? The
confidence instilled by gold derives from its tangible nature,
the confidence instilled by promissory notes issued by states
derives from the authority (or power) to collect tax revenue.
For this reason perhaps, banknotes in the UK have only
recently, since 1960, begun to bear the image of the monarch,
as if they need to carry a form of dignified assurance in their
worth. Legally enforceable guarantee is not the same as
confidence. One could also imagine a money based on the
confidence in the issuer’s promise that the money is
redeemable, which is to say that it will buy economic goods.
Withers holds back from any speculation of this kind,
preferring to describe instead the arrangements which
tradition had established:
‘It is doubtless a mere convention that gives gold its commanding
position, and it may be contended that it would be much simpler,
cheaper and more civilized to conduct exchanges by means of paper
secured on national property . . . or to abolish all need for mediums of
exchange and help ourselves to whatever we want, rendering honest
© 2009 The Author. Journal compilation © Institute of Economic Affairs 2009. Published by Blackwell Publishing, Oxford
service in exchange by the mere impulse of our own consciences. But we
are not concerned at present with any theoretical questions of an ideal
currency or absence of currency.’
(Withers, 1909, p. 16)
Were Withers writing today, how would he identify what, in
place of gold, occupies the ‘commanding position’ of modern
times? Would it be the fiat paper and coin currency that forms
part of the transactional stock of money? Or would he talk in
terms of bank deposits, backed by government guarantees? Or
would he base his analysis on so-called high-powered money
within the Bank of England, issued against government
securities? Withers himself, writing at a time when gold
provided at least some consensus on these matters,
nevertheless alludes to the ‘wavy and very ill-defined line that
separates cash from credit’ (ibid., p. 30) and the fact that ‘these
monetary matters are all so inextricably entangled that it is
almost impossible to mark them off logically and deal with
them one by one’ (ibid., p. 21). What would he make of the
more complex situation today?
Metallism and chartalism –
an unresolved question
In a sense, Withers stood midway between two epochs.
Intellectually and practically, the basis upon which finance was
built consisted of the solid physical reality of gold. In such a
world gold and its proxies are money and everything else
constitutes a kind of credit. Yet it is primarily with the
operation of the everything else that Withers is concerned:
‘. . . everybody understands money in the sense of pounds,
shillings and pence that we pay in the shape of coin, notes or
cheques for everyday wants. But the other most common use
of the word leads to a complication, because in its second
sense money means not money, but loan of money.’ As long as
gold is held to constitute the essential form of money, the clear
distinction between money and credit can be maintained.
Withers describes the workings of a creditary system linked to
gold, but not only has the tangible consensus offered by gold
been left behind in today’s world, but also the whole financial
environment has been brought within a legislative framework.4
Without any great fanfare, metallism has ceded place to
chartalism – the state theory of money. Chartalism5 is perhaps
a convincing analysis for a world in which individuals identify
their common interest with the state: the wise man from
Whitehall relieves the individual citizen of his burden of
responsibility for wider matters and the bureaucrat becomes
sovereign. But whether such an understanding of money is the
end of a long journey or merely a resting place on the way
awaits the circumstances to prove the case. In this author’s
view, an understanding of money based neither on gold nor on
the power of the state is to be found when money comes to be
seen as nothing but the world’s bookkeeping.
Conclusion
Withers convincingly described the phenomenon of money to
his generation, who inhabited the pre-World War I stability of
the Gold Standard, when London was the linchpin of global
finance. However if, as economists such as John Hicks

suppose, the form of money is in a process of evolution, then
surely a description of its contemporary form is needed today,
one that is not reliant on bygone assumptions, practices and
terminological categories.
Just as Withers stood between two monetary conceptions,
one physical the other fiscal, might we too be standing before
an unrecognised next step in the unfolding story of money? It
goes beyond this essay to set out the case for ‘money as
accounting’, but events such as the Withers centenary seminar
offer an opportunity not just to look back but also to think
ahead.
1. The distinction that Withers makes between ‘here and now money’ for
purchases and ‘loan of money’ is perhaps related to Steiner’s categories of
‘purchase money’ and ‘loan money’.
2. The author follows up Steiner’s indication that money, an articulated
phenomenon, is the world’s bookkeeping.
3. The Times, 22 March 1950, p. 9.
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iea e c o n o m i c a f fa i r s ju n e 2 0 0 9 81
4. In the background, setting the stage for and giving shape to economic
events, one finds the economic state, whether through direct involvement or
through regulatory and legislative agencies.
5. The State Theory of Money is known as ‘chartalism’; it identifies the state as
arbiter of ‘moneyness’. The acceptability of a medium of exchange is held to
derive from the authority of the state in specifying a unit of account and
demanding tax payment in that medium.
References
Edwards, R. (1995) The Pursuit of Reason: The Economist, 1843–1993,
Cambridge, MA: Harvard Business School Press.
Steiner, R. (1945) The Social Future, New York: Anthroposophic Press.
Withers, H. (1909) The Meaning of Money, London: Smith Elder & Co.
Arthur Edwards is a director of the Centre for Associative
Economics, currently engaged in research at Buckingham University on
Rudolf Steiner’s idea of three kinds of money. He has a special interest
in developing the societal role of financial literacy through his writing,
research and work in schools (mail@arthuredwards.net).